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NFTRH 'Morning Notes' Email Update: April 6

Now that the markets are becoming actionable, with the premier gold stocks technically broken, the stock market vulnerable beneath significant long-term resistance and even a less than stellar jobs report that got both Obama and Romney publicly fretting (a first inkling that Dear Monetary Leader Bernanke will eventually change the Fed's 'hard guy' stance with respect to policy), it is time for people who have not run with herds and gotten into trouble, to maintain perspective, strength, patience and a capitalist's attitude for coming opportunity.

This email update basically wrote itself and went to NFTRH subscribers last week. Presented here just FYI:

NFTRH is not a gold letter, a gold stock letter or any other readily definable thing. It is technical analysis, a lot of weird ratio indicators, psychology and a gut instinct by its writer with regard to the markets.

Gold remains a centerpiece of the analysis, but if policy makers are able to will the system to be fixed then NFTRH will become whatever the new reality demands.

Is the system fixed? Well I fail to see how some rigging of yield curves (while continuing inflation through ZIRP) and a little economic recovery (as you know, I have been claiming 'recovery' for some months now, receiving derisive mail from bears along the way) while not addressing the fact that additional debt is still created to fuel tepid economic growth and global bailouts can be called 'fixed'.

We are being asked to believe that economies can be managed indefinitely and that our leaders have got it all under control. I just do not buy it. We can see 'growth' and bullish stock market performance for a while as things are papered over until one day the system has had enough and simply rejects the dishonest policies that have been employed behind the scenes to keep things bailed out and propped. Governments have not employed real measures to change their way of doing business. They are thus far just doing more of the same things that have created the hazards like the one that started in the US in 2007 and the one in Europe last year.

The case for gold is that nothing has changed and if anything, policy has been pushed further out on a limb. Meanwhile, it appears that some powerful forces have begun a campaign, which has included Ben Bernanke's recent lectures and JPM's 'Head of Global Commodities' Blythe Masters protesting a bit too much on CNBC about JPM silver manipulation being speculated upon in the blogosphere. Famously, it has also included Warren Buffett deciding now would be a good time to ruminate about gold's lack of utility and thus, value. And then there is the big one, Dennis Gartman being cited in Forbes with Gold's Decade-Long Bull Run Is Dead, Gartman Says. Phew! That's a lot to deal with.

I will probably parse this article bit by bit on the blog, but "gold has been in bear territory since the summer of 2011" is all we need to know to get an idea where this article is going. It is called a correction. 'Bear territory'... ooohhhh.

Back when I was a just a blogger doing this for the simple purpose of trying to understand and differentiate bullshit from reality, I wrote a blog post (on a now defunct 'commentary' blog) in response to a ridiculous article making the rounds at the time (2007, I believe) citing Goldman Sach's Technical Analysis department's 'concerns' about gold due to waning momentum. A look at a monthly chart showed no such thing and I had a good, derisive laugh. This was when gold was in the 800's, half the current price. Now Forbes is citing Gartman, who says gold has suffered "irreparable damage" post-FOMC.

I'll include a chart in the blog post, but for our purposes we will just remember that the daily chart is not broken (though it needs to start forming a right side shoulder soon to actually look actionably bullish) and is looking a-okay by a weekly chart. I cannot tell you that the price assigned to gold will resolve the daily pattern bullishly and I cannot tell you that our weekly support parameter (chart attached omitted for this post) of 1580 will hold. But I can tell you that there are a lot of powerful people in business, media, government and quasi government already pounding home the reasons why gold bulls are a thing of the past and should make the adjustment to this reality that these people insist is in play.

The weekly chart shows that yes, gold lost the weekly EMA 20, which had generally supported it all the way out of 2008. So Gartman calls this 'bear territory' and 'irreparable damage'? Really Dennis? The only damage was the opposite condition to today's depressive one; as we are now finding out just how damaging the unbridled momentum of last summer was fated to be, especially in the miners, but also the metal. Gold itself is unbroken and apparently in need of some extra help in getting the memo that its bull is over. Out trot the big guns. This is war.

Mahatma Gandhi: "First they ignore you, then they ridicule you, then they fight you, then you win." [<-- thanks to a subscriber who so aptly cited this quote]

They are fighting the gold 'community' and it is why I have advocated not using your heart but rather, your head. The 'community' is in tatters and under assault from all angles. The 'community' may not win because many of its members will be made to puke up their ideals in the face the onslaught. These powers could break the 'price' of gold, which is why we work so hard to understand 'value' vs. 'price'. Because the longer and higher gold's bull market goes, the more fierce the battles are likely to be. If you are a gold 'player', you are managing risk in whatever way keeps you mentally healthy and lets you feel strong and ready to capitalize. If you are a value 'holder', if you agree that the macro fundamentals are just fine for gold, you sit out the latest battle and know that you are your own little Central Bank, not caring what happens to the price assigned to 'value' at any given time.

What you must not be is in a place where you do not know if you are a value holder or a player, sitting there in the middle and waiting to be picked off. Gold can shake off this nonsense and get to 2050 rather quickly or it can be broken down below the December low of 1523. The first warning would be a loss of 1580, AKA the weekly EMA 70 per the attached chart.

I will never attempt to fool myself into thinking I know what is going to happen. Ever. I may tell you what I think is happening and how I am personally getting in line with expectations, but this is all about risk management. Yet gold itself simply remains a 'value' anchor and a monetary barometer. It's all it ever was in my book. So whatever happens, I will remain bullish on gold as long as I see not only no real change in monetary policies, but also continuation and promotion of policy that routinely incorporates debt and inflation as a way of doing business. If it is being done covertly as I believe is now the case, then that illustrates a level of desperation on the part of 'the system'.

To summarize the above, just think about the difference in gold bug sentiment, the macro economic landscape, the major media and even policy maker tactics now compared to last summer. Then the signals tried to compel people to be wildly bullish the precious metals. Today, the opposite is in play. I am bullish because being contrary this cacophony has worked well thus far in a secular bull market that is not over until the technicals and macro fundamentals say it's over. Gartman has been trotted out before and is not a credible source for such a grand call.

On to gold stocks, the consolidation on the HUI gold stock index is breaking down. This invalidates the big upside targets for now. And yet, I am so bullish I almost cannot stand it. I worry that I may be under exposed to quality miners. Mahatma's quote is foremost in my mind. They are fighting back. All I know is that I want to hold value and that is cropping up all over the spectrum of 'quality' gold stocks.

NFTRH analysis will now lock and load for coming opportunities. Individual stock charts will be produced since different items will bottom at different times. Gold's ratio to other things will be watched in the effort to define the macro, non-gold asset markets, the 'real' price of gold, the economy and its pressures on policy makers. They are fighting now because the underlying driver is desperation.

I am happy to finally have data points coming in. The 1.5 year consolidation in the HUI represented a slack time when nothing actionable was happening other than a trading range. Now, we are becoming actionable and it is time to get to work. I would hope to be able to finally back off of some of the in depth clue seeking that has blown the newsletter up to 25 or so pages in favor of more direct and actionable analysis.

I am not the guy who always says "I don't know". I will pound a table once in a while. The last time was 2008. 2012 is shaping up such that it will only have been a 4 year gap since I was able to get overtly actionable and confident as a bottom feeder value seeker.

More to come in NFTRH182, which I hope to finish and mail out tomorrow since the markets are closed today and Sunday is Easter.



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